Americans are getting squeezed by rising health care costs. The latest numbers from the Centers for Medicare and Medicaid Services show that patient out-of-pocket spending increased by 10.4% in 2021, a rate not seen for more than three decades. The cost of monthly health insurance premiums also leapt, by 6.5%. And that was all before last year’s rapid inflation squeezed household budgets.
One often overlooked cause of soaring health care costs is hospital consolidation. When a single health care system becomes the only game in town, it effectively turns into a monopoly and can set prices at whatever level it likes. Even just a few acquisitions of smaller clinics by a large hospital allows them all to raise fees. Patients are forced to pay more for care, or travel farther afield, which can also be expensive.
Many hospital acquisitions these days are driven by a single well-intended but poorly written policy, the 340B Drug Pricing Program, which became law in 1992 and expanded in 2003. The goal was to help low-income patients get access to medicine and improve their health. Instead, 340B has turned into a cash grab for wily operators gaming the system.
The program requires drugmakers to give significant discounts to health care facilities that serve a high number of low-income and uninsured patients. The hospitals and clinics that qualify can typically purchase drugs at 25% to 50% off. In theory, the savings should go to help struggling patients. But the program has a few fatal flaws.
As a study in the New England Journal of Medicine observed, the program doesn’t require hospitals to use their 340B savings to improve care for underserved patients and imposes only minimal oversight as to whether they’re supporting that mission at all.
It certainly doesn’t seem to be helpful. As the authors of the study note, “financial gains for hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients.”
While it’s clearly not fulfilling its intended purpose, the 340B program is driving up health care costs by incentivizing hospital mergers. As the law is written, a hospital can get those up-to-half-off discounts at any facility it operates, including satellite clinics. And the discounts strengthen incentives for hospitals to resell drugs to middle-class and well-off patients who have generous insurance coverage.
All this has acquisitions encouraged to the point that now, the 10 largest health care systems in the United States control nearly one-quarter of all hospitals. In short, large hospital systems are exploiting the law to sweep ever-larger swaths of the health care system into 340B, including facilities in affluent areas. The number of hospitals and clinics enrolled in the program increased by an astonishing 517% from 2000 to 2020. Hospital income is up accordingly: From 2013 to 2018, the 10 largest health systems saw total patient revenue increase 82%, from $505 billion to $918 billion, according to research from Deloitte Insights.
But while hospital conglomerates get rich off of 340B, the neediest patients see no benefit, and consolidation continues to push health care spending higher.
The only solution is for Congress to revise the law, enacting safeguards that return 340B to its intended purpose.
A good place to start would be cracking down on eligibility. Program access should be limited to health care facilities that actually serve low-income patients. Next, 340B hospitals should have to use their discounts to benefit the target population and document how they’re doing so.
Until politicians overhaul the law, we’ll all continue to pay.
Sally C. Pipes is the chief executive and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All.” She wrote this for The Dallas Morning News.
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